ACIT, PIRAMAL CHAMBER, PAREL vs. ORBIT VENTURES DEVELOPERS, KHAR WEST, MUMBAI

आयकरअपीलीयअिधकरण�ायपीठमुंबईम�। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI NARENDER KUMAR CHOUDHRY, JM & SHRI ARUN KHODPIA, AM I.T.A. No. 7194/Mum/2025 (Assessment Year: 2016-17) Orbit Ventures Developers DCIT – Circle 23(1), Mumbai 4th Floor, Shivraj Heights, 14th Piramal Chambers, Lower Parel (East), Vs. Road Corner, Linking Road, Mumbai-400012 Khar(West), Mumbai-400052 PAN: AABFO6307R Assessee- अपीलाथ� / Appellant Revenue-��थ�/ Respondent :

I.T.A. No. 9502/Mum/2025 (Assessment Year: 2016-17) ACIT Orbit Ventures Developers 5th Floor, R.N. 511, Lal Baug, 4th Floor, Shivraj Heights, 14th Road Vs. Piramal Chambers Parel, Corner, Linking Road, Khar(West), Mumbai-400012 Mumbai-400052 PAN: AABFO6307R Revenue- अपीलाथ� / Appellant Assessee-��थ�/ Respondent :

Assessee by : Shri Rajen Kumar : Shri Ajay Soneji, Sr. DR Revenue by : 02.07.2026 Date of Hearing : 23.09.2026 Date of Pronouncement

O R D E R Per Arun Khodpia, AM: The aforesaid cross-appeals are preferred by the assessee and the Department against the order of the Commissioner of Income Tax Appeals,

National Faceless Appeal Centre (NFAC), Delhi [in short, “the Ld. CIT(A)”], dated 13.10.2025 for the Assessment Year (AY) 2016-17.

notional or estimated interest is contrary to the settled principle of taxation of real income. ii) That the Learned CIT (Appeals) has erred in holding that the Appellant Firm has derived benefit or gain from the utilization of the corpus fund of Rs.2,45,00,000/- and security deposit of Rs.42,75,495/- ignoring that such funds were received for specific purposes and were not in the nature of income or borrowings on which the interest liability has crystalized.” Grounds in ITA No.9502/Mum/2025 of Revenue “1. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in deleting the addition of Rs. 2,87,75,495 Corpus Fund and Society Deposits made under section 68, by treating the same as explained liabilities, without the assessee having discharged the statutory onus under section 68 2. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in holding against the Assessing Officer for no independent inquiry OR no verification of purchasers, thereby effectively shifting the burden from the assessee to the Department, contrary to the scheme of section 68 3. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in substituting the section 68 addition of Rs.2,87,75,495 with a direction to compute a deemed interest 10 percent on the said sum, which is not contemplated as an alternative to section 68 and defeats the statutory consequence of taxing unexplained credits 4. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in directing assessment of a new item deemed interest on corpus OR society deposits amounting to enhancement OR new source, without complying with the mandatory requirement of notice under section 251(2), thereby vitiating the direction 5. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in granting relief in respect of Rs. 11,25,000 Flat No. 602 merely on the premise that it is recorded as sales, despite the purchaser s non compliance to notice u s 133(6) and without conclusive verification of identity genuineness so as to rule out application of section 68 6. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in allowing the Rs.11,25,000 issue only for statistical purposes by remitting for verification, instead of recording a clear finding on merits regarding taxability in AY 2016 17, rendering the appellate adjudication infirm 7. Whether, on the facts and in the circumstances of the case and in law, the Learned CIT A erred in relying on the nomenclature OR characterisation of receipts as corpus society deposits proposed to be passed on to a society to hold that section 68 does not apply, without first ensuring complete identification wise linkage verification of contributors and the nature source of credits as mandated by section 68 8. The Appellant craves leave to add to, alter, amend, vary, 8 substitute OR withdraw any of the above grounds of appeal at OR before the time of hearing” 3

Financial Year (FY) 2015-16 and revenue recognized in the said year. Primarily, the assessee failed to submit confirmation from the parties who have tendered unsecured loan to the assessee. It was submitted that the confirmations are not given by the parties in view of non-payment of interest due to financial crisis. The assessee was also required to furnish details of certain amounts received in the form of corpus funds and set aside deposits for sale of flats during the FY 2015-16 to which the assessee responded that such amounts were collected from the flat purchasers in terms of agreements entered into with each flat purchaser. The said funds will be paid to society which will be framed pursuant to conveyance and handing over of the society to the members when it is formed. Due to pending litigation also, pending approval from Aviation Ministry for construction of higher floors, the project is not completed yet. Admittedly, the assessee has corpus funds of Rs.2,45,00,000/- and society deposit of Rs.42,75,495/- till 31st March, 2016.

proceeded with the variations on account of unexplained credit for unverified loans as the assessee failed to provide confirmation from 7 loan parties and also during independent verification these lenders have not submitted their confirmations. Accordingly, an amount of Rs.4,20,00,000/- was proposed to be added u/s 68 of the Act, treating the same as unexplained cash credit. Further before concluding the assessment, out of 7 lender parties, 6 lenders have responded to the notice u/s 133(6) and, therefore, the amount of addition was reduced to Rs.1,10,00,000/- and added u/s 68 of the Act. Another addition was made on account of unexplained cash credit for amount received on account of sale of flats by the assessee during the year under consideration. It is observed by the Ld. AO that the assessee has submitted details of purchasers who had made payments during the FY 2015-16. For independent verification, notices u/s 133(6) were issued to such parties, however the purchasers had not furnished their confirmation and other transaction details till the issuance of show-cause notice but out of such parties one had responded before conclusion of the assessment. Accordingly, the remaining party who had not responded namely, Shri Suraj Kishore Khubchandani from whom the assessee had received an amount of Rs.11,25,000/- has been treated as unexplained cash credit and added u/s 68 of the Act.

collected on behalf of the society which has to be formed pursuant to conveyance and handing over of such funds to the society members when the society is formed but the same is pending due to certain litigation and on account of approval of Aviation Ministry for construction of higher floors. The Ld. AO was not convinced with the submissions of the assessee as the funds were not utilized as per terms of agreement nor were recognized as revenue from operations. Therefore, an amount of Rs.2,87,75,495/- (Rs.2,45,00,000/- on account of corpus fund and Rs.4275495/- as security deposit) is treated as unexplained cash credit u/s 68 of the Act and added to the income of the assessee. In terms of aforesaid additions, the taxable income of the assessee was recomputed by the Ld. AO and determined as under:

S. No. Description Amount (in INR) 1. Income as per Return of income filed 3,40,72,650/- 2. Income as computed u/s 143(1)(a) 3,40,72,650/- 3. Variation in respect of issue of unexplained credit u/s 68 (as 4,09,00,495/- per Para 3.6 above) 4. Total income determined 7,49,73,145/-

(i) Regarding the addition of Rs.1,10,00,000/- u/s 68 on account of unsecured loan received from M/s. Shri Ganesh Enterprises, made for the reason that the lender has not responded to notice u/s 133(6), Ld. CIT(A) noted that the primary documents required for satisfaction of pre- conditions u/s 68 that is identity/creditworthiness of the lender and genuineness of the transaction were furnished. It is further observed that if the notice us 133(6) was not responded by the lender, the Ld. AO has the powers to issue summons u/s 131 of the Act. It is also noted by the Ld. CIT(A) that the assessee cannot guide the Ld. AO how to make enquiry to verify certain transactions. Finally, the Ld. CIT(A) sustained the addition of Rs.1,10,00,000/- by dismissing the ground of appeal of the assessee.

(ii) Regarding addition of Rs.11,25,000/- as unexplained cash credit u/s 68 in respect of part consideration received towards sale of residential flat to Shri Suraj Kishore Khubchandani, the Ld. CIT(A) was convinced with the contentions raised by the assessee as the said receipt was offered to tax by the assessee. Accordingly, the provisions of section 68 cannot be applied in relation to receipts which are shown in the books of accounts of the assessee from time to time and also offered to tax. Ld. CIT(A) allowed the contention of the assessee but directed the Ld. AO to verify the claim of assessee and allow the same.

(iii) Regarding next major addition on account of corpus fund and security deposit, the Ld. CIT(A) was of the opinion that such amounts were used by the assessee for business activities of the developer till it is handed over to the society. Therefore, the Ld. AO was directed to estimate at 10% as deemed income on the total deposit of Rs.2,87,75,495/-, as the market rate of interest prevailing at that time in the EPF and GPF was around 9% interest, which was tax free income and 10% rate of interest was considered fair and justified. The Ld. AO was accordingly directed to recompute the income of assessee. The ground of appeal pertaining to this addition, therefore was partly allowed.

The entire thrust of the addition by the Assessing Officer is that the two parties namely Mr. Mohit Singh Khanduja and M/s Shree Ganesh Enterprises have not responded to section 133(6) notices. Addition cannot be made on mere ground that parties failed to reply in response to notice u/s 133(6). Reliance is placed on ITO v. Gold Finger Establishment [ITA No. 4212/Mum/2015] para 11 Sonicwall v. ACIT [ITA No. 3860/Mum/2019] para 8 Further, the Assessee has produced the following documents: Unsecured Loan of Rs. 10,00,000/- from Mr. Mohit Singh Khanduja Loan Confirmation from the lender page 1 of the Condensed Paper book It is pertinent to note that there is an opening balance of Rs. 11,00,000 which is carried forward from the earlier year and no addition was made by the Assessing Officer in the earlier year Further, the Assessee has made consistent interest payments to the lender. Ledger of the lender - page 3 of the Condensed Paper book Bank Statement-page 4 of the Condensed Paper book Unsecured Loan of Rs. 1,00,00,000/- from M/s Shree Ganesh Enterprises Loan Confirmation from the lender page 11 of the Condensed Paper book It is pertinent to note that this was a short term loan of less than 4 months Loan was taken in October 2015 and repaid back in February 2016 Ledger of the lender page 12 of the Condensed Paper book Bank Statement-page 13-15 of the Condensed Paper book Creditworthiness as the ability to arrange funds for lending rather than merely the earning capacity of the lender. Reliance is placed on the decision of Florence Nightingale Proposition 2 (DEPARTMENT APPEAL) Ground No. 5 and 6- Deletion of Addition u/s 68 with respect to amount of Rs. 11.25,000/- received from a buyer named Mr. Suraj Kishore Khubchandani of the Flat No. 602 The finding in the Assessment Order is at para 3.6.2 (Page 10) The finding in the CIT(A) Order is at para 7.1-7.2 (Page 51)

The transaction with respect to receipt of Rs. 11,25,000/- pertain to sale of additional space of 69 sq. ft by the Assessee to Flat purchaser Flat No. B/602 Mr. Suraj Kishore Khubchandani - Supplementary agreement - page 31-34 of the Condensed Paperbook - relevant part para D on page 32 The Assessee has offered the said amount as Sales and cannot now be taxed again. Proposition 3 ASSESSEE APPEAL CONCISE GOA No. 5 AS WELL AS DEPARTMENT APPEAL - Ground No. 1 to 4 Addition of Rs. 2,45,00,000 on account of collection of Corpus Fund and Rs. 42,75,405/- on account of collection of Security Deposit The finding in the Assessment Order is at para 3.6.3 (Page 11) The finding in the CIT(A) Order is at para 8.3 (Page 54) As per the agreement between Flat Purchasers and the Assessee placed at page 24 30 of the Condensed Paperbook, the Flat Purchasers shall pay the Developers following amounts Rs. 5,00,000 towards corpus fund (para 21(d) at page 30 of the Condensed Paperbook Towards Society Deposits totalling to Rs. 1.00.350 Rs. 350 towards admitting Purchasers as member and for share Rs. 350 towards admitting Purchasers money of the said Society [para 21(a) at page 29 of the Condensed Paperbook] Rs. 25,000 towards Security deposits for obtaining water connection, telephone and cable facility infrastructural facilities (para 21(b) at page 29 of the Condensed Paperbook] Rs. 25,000 towards three phase electric meter charges [para 21(c) at page 29 of the Condensed Paperbook] Rs. 50,000 towards proportionate share of development charges [para 21(e) at page 29 of the Condensed Paperbook] The above amount of Rs 5,00,000 have been duly reported in the Corpus fund Ledger at page 16 as well as page 22 (detailed list of buyers) of the Condensed Paperbook wherein each flat purchaser has paid/ has to pay Rs. 5,00,000 in accordance with the aforesaid agreement. The total amount received is Rs. 2,45,00,000/- for the Corpus Fund is in accordance with the aforesaid agreement. Further, the amount of Rs. 1,00,350 has also been reported in the Society Deposit Ledger at page 18 as well as page 22 (detailed list of buyers) of the Condensed Paperbook wherein each flat purchaser has paid / has to pay Rs. 1,00,350 in accordance with the aforesaid agreement. The total amount received is Rs. 42,75,495/- for the Society Deposits is in accordance with the aforesaid agreement.

The aforesaid amounts have been reported as trade liabilities in the Balance Sheet of the Assessee [page 20-21 of the Condensed Paperbook] The finding of the Ld. CIT(A) demonstrates adhoc addition of 10% : "I have perused the observation of the Id AO and the appellant's submission. I find that the Id AO has not made any attempt to verify the list of the prospective flat buyers and their contribution towards corpus and Society Deposits of the Housing society that would be formed once the Society is formed. Both the deposits if handed over to the resident housing society is not the income of the assessee or attract section 68 of the Act if they are received from the flat buyers. It is observed that the appellant furnished one sample agreement for Sale of Flat No. 702. However, the Id AO did did not ask for the detailed list of the buyers who have paid the Corpus and Society Deposits and made any independent inquiry to prove it in his favor to invoke section 68 of the Act. In absence of the same, I am declined to accept the action of the Id AO and therefore, the addition so made is liable to be deleted. However, the Corpus fund Rs. 2,45,00,000/- and Society Deposits Rs. 42,75,495/- was utilized by the appellant for its gain and no interest was being paid to the flat buyers. The Corpus Fund and Society Deposits are the money of the RERA which are corpus of the Housing Society and permitted to be used by them only in the need of the society for any capital expenditure or to meet urgent need.... In absence of the same, the Id AO is directed to verify the same and if no interest income is declared by the appellant on such deposits received from the buyers, in its profit and loss account, AO is directed to take 10% as deemed income on the total deposit of Rs.2,87,75,495/- as the market rate of interest prevailing at that time in EPF/GPF, etc. were fetching around 9% interest which was tax free income. The finding of the Ld. CIT(A) that the Assessee has utilized the amount of Corpus Fund and Society Deposit is incorrect and based on surmises. In fact, if the Balance sheet of the Assessee is examined at page 54 of the Condensed Paperbook, it is evident that the Assessee had bank balance of Rs. 11.28 crores. Therefore, it cannot be said that the Assessee utilized the amounts of Corpus Fund and Society Deposits for its "for its gain and no interest was being paid to the flat buyers.". It is a well settled law that the Revenue cannot resort to adhoc additions made purely on surmises. Thus, the ad-hoc addition was arbitrary and unjustified.”

also taken for 4 months which was taken in October, 2015 and repaid in February, 2016. Relevant documents are furnished in the assessee’s paper book. Therefore, while the assessee has furnished documents related to capacity of the lender, identity of the lender and genuineness of the transactions, no addition can be made. The assessee placed his reliance on the decision of ITAT, Delhi in ITA No. 5586/Del/2025 dated 25.06.2026 in case of Florence Nightingale Educational Society v. DCIT.

of an addition under section 68 of the Act in the assessment year under consideration, i.e., AY 2016-17.

examination with reference to the individual credits. To the extent of Rs.10,00,000/-, the amount pertains to an earlier year and, therefore, does not constitute a credit of the relevant previous year. As regards the balance amount of Rs.1,00,00,000/-, the material placed on record evidences the receipt through banking channels as well as repayment of the loan during the same financial year. The addition, therefore, cannot be sustained merely on the basis of an inference that the transaction represented an accommodation entry, in the absence of further substantive material establishing such a character.

and, instead of finally adjudicating the issue, has restored the matter to the file of the Ld. AO for verification of the relevant facts. It is the specific contention of the assessee that the aforesaid amount had already been offered to tax in the year under consideration and, consequently, the same amount could not be subjected to tax once again by invoking the provisions of section 68 of the Act. The aforesaid factual assertion requires verification from the books of account and other relevant material.

Ld. CIT(A) has partially accepted the contention of the assessee and therefore, had allowed the ground of appeal but estimated the benefit of 10% extracted by the assessee from such deposits by using such funds for its commercial benefits which is challenged by the assessee whereas the Department is in appeal against the relief granted by the Ld. CIT(A).

various flat buyers as per the sale agreements, meant to be handed over to a society on project completion. He noted these amounts appear in the balance sheet under "other trade liabilities" and that one sample flat sale agreement (for Flat 702) explicitly provided for such corpus and deposit payable by the buyer. Because the project was delayed (litigation and pending Aviation Ministry approval) and the society not yet formed by FY 2015-16, the funds remained with the assessee. CIT(A opined that if these deposits are indeed from genuine flat purchasers and are to be eventually transferred, they represent customer liabilities/trust monies, not the assessee's own income. He emphasized that under the Maharashtra Ownership of Flats Act (MOFA) and (now) RERA, a promoter is obligated to keep such funds for the society's benefit and is prohibited from misusing them. In CIT(A)'s view, taxing the corpus as income despite those legal safeguards (with even penal provisions under MOFA) would be inappropriate, especially when the assessee acts as a trustee for the eventual society. Furthermore, CITIA criticized the AO for not verifying the identities of all contributors "the AO has not made any attempt to verify the list of prospective flat buyers and their contribution" requesting details beyond the one agreement excerpt the assessee provided. Because the AO did not uncover any specific evidence that these credits were bogus or from unexplained sources, CIT(A) felt the addition was unjustified. He categorically held that such corpus/society deposits, if actually received from flat purchasers, do not attract Section 68 and ordered the addition to be deleted. Revenue's Rebuttal: The above reasoning is fundamentally flawed and goes against the principles of Section 68 and judicial precedents. Our counter-arguments are as follows: a. Onus on Assessee to Explain Credits Fully: Section 68 places a clear burden of proof on the assessee to satisfactorily explain the nature and source of any sum credited in its books. This includes establishing the identity of the persons from whom the money is received, their creditworthiness, and the genuineness of the transactions. The law is well-settled that until the assessee discharges this onus, the AO is not obliged to accept the entry as explained. Here, the assessee's explanation for ₹2.87 Cr was that these were amounts received from multiple flat buyers. Simply asserting that in the sale agreements buyers agreed to pay a corpus and deposit does not discharge the onus. The assessee needed to provide a complete list of all purchasers, the amounts each paid towards corpus/deposit, and evidence of receipt (e.g. copy of each buyer's ledger or receipts, their PANs, confirmation letters, etc.). However, the record shows the assessee furnished only a summary ledger and one "representative" agreement. Details of individual contributors (names, PANs beyond the one sample, dates and mode of payments) were not on record. The AO highlighted that the assessee failed to show utilization of the funds or furnish documentary proof of project still incomplete beyond its own statements. Thus, the primary onus remained undischarged a point CIT(A glossed over. By law, the onus never shifts to the Department until the assessee gives a credible prima facie explanation. CIT(A's expectation that the AO should have suo motu "asked for detailed list" or conducted further fishing inquiries is misplaced; the assessee should have voluntarily provided all material to substantiate its claim. The AO did issue a show-cause asking why ₹2.8775 Cr should not be treated as unexplained credit (since the assessee admitted the money sat unused in its books). The onus was squarely on the assessee at that point to furnish comprehensive evidence for each credit. Its failure to do so justified the addition. The CIT(A's finding effectively rewards the assessee for a lack of full disclosure and shifts the statutory burden away from the assessee - a clear error in applying Section 68. 18 b. Lack of Identification & Verification of Contributors: Even on facts, the CIT(A's confidence that the ₹2.87 Cr came from genuine flat purchasers is unfounded, because neither the AO nor CIT(A) actually verified the identities or confirmations of those contributors. CIT(A notes that the AO did not "make any attempt" to verify each buyer. But importantly, the assessee itself did not furnish those buyer details upfront (apart from one example). If the assessee had provided, say, a list of names/PANs and confirmation letters from all purchasers, and the AO ignored them, then CIT(A's criticism might hold. Here, however, the assessee gave minimal information. It is telling that CIT(A himself only had a single sample agreement for Flat 702 on record. Deciding the fate of ₹2.87 Cr based on one sample is perilous - there were presumably dozens of flats and contributors. Without examining whether all such receipts were indeed linked to real buyers, it is premature to conclude the credits are explained. Notably, CIT(A did not obtain any remand report or additional evidence for the remaining buyers; he simply assumed the AO should have done so. This is contrary to law: The Supreme Court in CIT v. P. Mohankala (2007, 291 ITR 278) held that if the assessee's explanation is not satisfactory, the sum can be deemed income, and the presence of some documentation does not tie the AO's hands if genuine doubts remain. Here, significant doubts do remain: the project was stalled and some "purchasers" might have even withdrawn or been refunded (common in delayed projects). If so, funds claimed as deposits might actually be the assessee's own unaccounted money parked under this head. Without thorough verification, the possibility of accommodation entries unsubstantiated credits cannot be ruled out. The CIT(A essentially gave a clean chit without investigation precisely what Section 68 guards against. High Courts have consistently held that mere book entries or self-serving agreements cannot suffice if surrounding circumstances indicate potential camouflage. The Delhi High Court in CIT v. Nova Promoters & Finlease (342 ITR 169) and the Supreme Court in PCIT v. NRA Iron & Steel (412 ITR 161, 2019) have reiterated that the Department is entitled to pierce the explanation and investigate the source of the source if needed, especially where the credits seem the funds dubious. In the present case, the AO identified a red flag were collected even before requisite approvals (aviation NOC) were in place, meaning the assessee took substantial money from buyers for a project that was uncertain. This could indicate desperation for funds or a method to inject cash. The AO was therefore correct to treat the explanation as unsatisfactory and make the addition when the assessee could not produce concrete evidence for each credit. We will argue that CIT(A's approach subverts Section 68 by demanding the AO to prove the negative (that credits were not from genuine buyers), whereas the law requires the assessee to positively prove that they were. c. Misapplication of MOFA/RERA Provisions: CIT(A) relied on the existence of MOFA/RERA regulations (requiring separate accounting of such funds) to assert that the corpus inherently belongs to the society and hence not the developer's income. While we acknowledge these regulations, they do not automatically immunize an assessee under the Income Tax Act. The Income Tax authorities are not bound by how a transaction is labeled or even by other laws' treatment, if in reality the money represents the assessee's own undeclared income. In fact, in this case the assessee appears to have violated the spirit of MOFA/RERA: those laws mandate the promoter to keep corpus funds segregated and eventually transfer them with interest to the society. But CIT(A observes that no interest was paid to the flat buyers, and the funds remained with the assessee for its own benefit. The assessee did not deposit this money in a dedicated bank account yielding interest for the society; instead, it effectively 19

enjoyed an interest-free loan of ₹2.87 Cr for years. This is a strong indicator that the assessee treated the money as its own funds, not as a pass-through liability. In fact, in a recent order involving a similar issue (Bhoomi Realtors Pvt. Ltd.), the ITAT Mumbai highlighted that when a housing society is not yet formed, a builder cannot claim to hold funds "in trust" for a non-existent entity. In that case, interest from corpus funds parked in the builder's bank (with TDS in builder's name) was held taxable in the builder's hands, as there was no actual separate person (society) at the time to own that income. The Tribunal reasoned that accepting the builder's "fiduciary capacity argument would lead to the interest income escaping tax altogether, since it belonged to neither a non-existent society nor was shown by the builder. By analogy, in our case, the principal corpus amount itself would escape taxation permanently if the assessee's claim is blindly accepted the builder doesn't pay now (claiming it's not its income), and when the society eventually forms and money is transferred, the society also typically wouldn't be taxed on a capital receipt. Section 68 is meant to prevent such escape when the facts indicate the credit could be the assessce's own unaccounted money. CIT(A's reliance on MOFA provisions is thus not a shield; rather, the assessee's non- compliance with those very provisions (no interest or transfer for many years) strengthens the Revenue's case that the funds were indistinguishable from the assessee's own capital during the interim. Moreover, even capital receipts can be taxed under Section 68 if unexplained e.g. share capital, partner's capital, etc., when source is not proven, are treated as income by fiction of law. The Bombay High Court in CIT v. Fakir Mohmed Haji Hasan (247 ITR 290) observed that the character of a receipt (capital or revenue) does not bar its taxation under deeming provisions if the assessee fails to explain it. Here, the assessee's failure to fully explain the ₹2.87 Cr means the sum is deemed to be income, notwithstanding the argument that it's a "liability". CIT(A's blanket statement that these deposits "cannot be the income of the assessee or attract section 68" if collected from buyers is an incorrect interpretation of the law. They certainly can attract Section 68 in the absence of a satisfactory explanation to the AO's mind - which is exactly the scenario here. d. CIT(A's Acknowledgment of Assessee's Gain Supports Addition): Ironically, CIT(A's own order concedes that the assessee derived a financial advantage by holding the corpus funds. He notes that the corpus should have been kept in bank FDs earning 9% tax-free (for the society's benefit), and that "the interest earned or deemed to be earned will form part of the income of the appellant till it is handed over". This statement undercuts the notion that the assessee was a mere custodian; it affirms the assessee enjoyed the benefits of ownership (interest or use of money) during the period. If the assessee's role were truly that of a transparent trustee, any actual interest would belong to others and not be its income. But CIT(A correctly points out that since the assessee did not credit any interest to the buyers or society, such benefit must be taxed in its hands. We submit that the same logic extends to the principal: if in substance the assessee treated that money as its own (to the extent of using it interest- free in business, for instance), the principal is as much "income" in a broad sense as the interest. Section 68 is designed for precisely such situations where an assessee's books show credit balances that cannot be concretely tied to genuine external sources at that time. The AO effectively saw through the form (liability heading) to the substance (unexplained cash influx) an approach upheld by the Supreme Court in CIT v. Durga Prasad More (82 ITR 540) where it was held that revenue authorities are entitled to look at the reality of transactions and not be blinded by facial documents or arrangements. If the reality here is that the 12.87 Cr was not truly segregated or 20

enforceably owed to any identified entity at the time (remember, the society didn't exist and buyers had no control over the funds), then treating it as the assessee's income (subject to later correction when actually handed over) is justified to prevent leakage of revenue. CIT(A's partial measure of taxing notional interest acknowledges the assessee's enjoyment of the funds, but he erred in giving the principal a free pass. The entire credit amount remains unexplained in a tax sense as long as the assessee cannot fully substantiate the source or until it is actually paid out to the society with proper records. In summary, the CIT(A's deletion of the ₹2.8775 Cr addition was premature and improper. The AO's action was in line with Section 68: the assessee did not discharge its burden to explain those credits satisfactorily, making the addition legally tenable. Numerous judgments support the Revenue's stance that unverified credits must be taxed. Here, identity and genuineness of ₹2.87 Cr were at best partially explained and at worst not verified at all. Thus, we have strong grounds to argue that CIT(A's relief was erroneously granted and should be overturned by the ITAT, restoring the full addition under Section 68. 2. Part Sale Consideration ₹11.25 Lakh Genuineness Not Established, Section 68 Justified CIT(A)'s Finding: CIT(A treated this ₹11.25 lakh as a genuine sale receipt pending simple verification. He accepted that the amount was recorded in the assessee's books as part of the sale of Flat No.602 to Mr. Suraj Kishore Khubchandani. The assessee provided evidence: the ledger account of the buyer, corresponding bank credit on 20/10/2015, and relevant pages of the registered sale agreement. CIT(A observed that the AO did not find any defect in these documents the only reason for dubbing the amount "unexplained" was that the buyer did not respond to a 133(6) notice (he was one of two purchasers who were initially non-responsive). Subsequently, the other purchaser did confirm, leaving Mr. Khubchandani as the sole unverified party for ₹11.25L. CIT(A agreed with the assessee's submission that failure of a third party to reply cannot, by itself, make an otherwise accounted sale receipt an "unexplained cash credit", especially when the assessee has documented the transaction. He cited the principle that one cannot treat the same receipt as both a sale (offered to tax) and an it has to be one or the other. unexplained credit simultaneously Since the assessee claimed it was part of sales revenue (which was accepted in computation of profit), adding it again under Sec 68 would mean double taxation of that sum. Thus, CIT(A's solution was to remand for verification: if the AO finds the ₹11.25L was indeed included in the income (sale) and there is no contrary evidence, the addition should be dropped. Essentially, CIT(A found the assessee's explanation plausible and saw the AO's approach as overly rigid. Revenue's Rebuttal: We respectfully disagree with CIT(A)'s lenient view. While we acknowledge that genuine recorded sales should not be taxed twice, the core issue here is the genuineness of this particular sale transaction, which remains in doubt. Our contentions: a. Possibility of Accommodation Entry / Bogus Sale: The scenario part of a sale consideration received, the buyer fails to respond or confirm raises a red flag about whether the sale was genuine or the receipt truly came from the said buyer. It is not 21

unheard of for taxpayers to route unaccounted money into books by fabricating sales, especially in real estate where sales can be under-the-table or on-paper. If the flat sale was legitimate, one would expect at least some corroboration from the buyer, or that the sale would be eventually completed (with full consideration received and property registered). Here we note: ₹11.25L was part payment (possibly an advance or first installment). Did the buyer pay the rest? Did the sale finalize? The records show this was an amount received in Oct 2015, yet even by mid-2023 the AO had to inquire, and the buyer did not acknowledge the deal. This suggests either the buyer was untraceable, or the transaction was not arms-length. Section 68 can apply even to amounts credited as "sales" if those sales are found to be fictitious or not substantiated. The assessee's argument that "a receipt cannot be treated as unexplained cash credit if shown as sale" is an oversimplification. Courts have held that substance prevails over form if what is shown as a sale is not a real sale, the corresponding receipt is nothing but an unexplained credit in the books. The burden was on the assessee to prove the genuineness of the sale, not merely produce self-serving documents. A ledger entry and a contract copy are internal/controlled documents; the independent verification was missing. The AO's resort to Section 68 was precisely because the independent party (buyer) did not corroborate the story, leaving the transaction unverified and suspicious. The CIT(A, in our view, erred by assuming that recording it as a sale is sufficient. The Supreme Court's rulings in Sumati Dayal v. CIT (214 ITR 801) and Durga Prasad More emphasize looking at surrounding circumstances and human probabilities over mere entries. It is counterintuitive that a genuine flat buyer would ignore a verification request regarding his own payment. If Mr. Khubchandani was genuine and had indeed paid for a flat, he had no reason to avoid confirming it. His non-response supports the AO's inference that the transaction may not be bona fide perhaps the identity is a facade, or the payment came from the assessee's own sources (with the "agreement" being a paper arrangement). Under these circumstances, the AO rightly treated the credit as unexplained due to lack of satisfactory explanation (the assessee's explanation was essentially "it's a sale", which the AO was entitled to not accept at face value given the lack of third-party confirmation). b. Incomplete Reporting vs. Double Taxation: CIT(A's concern about double taxation is valid only if the ₹11.25L was truly included in the taxable income. The assessee claims it offered the amount as part of sales on 20.10.2015. However, we must verify how it was offered. If the assessee followed percentage-of-completion accounting or some revenue recognition policy, it might not have recognized revenue for an uncompleted sale (especially if only part payment was received). Alternatively, if they did recognize it, what if the sale got canceled later? There are many nuances. The CIT(A unfortunately did not delve into whether the profit from that flat sale was actually computed and taxed in AY 2016-17 or if it was pending. By simply assuming it was taxed, CIT(A leaned towards the assessee. In any case, the AO can be directed by the ITAT to ensure no double addition-i.e., if the ₹11.25L was already part of the credited sales in the P&L, an addition under Sec 68 would indeed overstate income. But the proper course in that scenario (if the sale is suspect) would be to treat the sale itself as non-genuine, remove it from revenue, and then tax the receipt under Sec 68. These adjustments could not be done in the limited scope of faceless assessment at that late stage, but an appellate forum could consider it. The bottom line is: if the transaction is unexplained or fake, the money should be taxed somehow. Section 68 is the straightforward method, and the AO chose that to avoid letting the sum slip out untaxed in case the sale was bogus. We will argue that CIT(A should not have interfered with the AO's justified protective approach. At most, CIT(A could have asked 22

for further evidence of genuineness (like a confirmation or affidavit from the buyer) which he did not; he simply trusted the books. c. Legal Support for Revenue's View: There is precedent that where an assessee shows a cash credit as a sale but fails to prove the sale with credible evidence, the AO can treat it as unexplained income. In similar cases, courts upheld additions when purported sales to certain parties were found unsubstantiated or the parties non- existent. The Delhi ITAT in ITO vs. Yadu Steels (2019) held that mere routing of cash through sales or purchases will not circumvent Section 68/69 if the underlying transaction is not genuine. Here, Mr. Khubchandani's non-cooperation made the transaction unverified. CIT(A himself states the ground was allowed "for statistical purpose", meaning the issue wasn't finally settled on merits. This implicitly acknowledges that if on verification the receipt was not part of income or was dubious, the addition would stand. We assert that the ITAT, as the final fact-finding authority, should look at the available facts and conclude that the assessee did not discharge its onus to prove the genuineness of this credit. The AO did what any reasonable officer would lacking third-party confirmation, he treated the amount as unexplained (especially since another party did comply, isolating this one as problematic). Given the above, Revenue's appeal will argue that CIT(A's relief on the *11.25L was unwarranted. Either the amount was already taxed as part of sales (in which case the addition is redundant and can be removed only if the sale is unquestionably genuine), or the sale was not genuine (in which case the addition should be sustained under Section 68 to tax the money in the assessee's hands). The CIT(A assumed the former without properly excluding the latter possibility. Section 68's what matters is applicability does not exclude trade receipts whether the credit is unexplained. The cash credits in business accounts (even in sales or purchase ledgers) can be assessed under Section 68 if the assessee fails to establish their authenticity. Therefore, we have a tenable case that the ITAT should restore the addition unless the assessee definitively proves the receipt was from a genuine sale that has been appropriately reported. 3. Burden of Proof and Legal Interpretation Several cross-cutting legal errors in CIT(A)'s approach merit highlighting, as they strengthen Revenue's case for appeal: Shifting of Burden: In both issues above, CIT(A effectively placed the onus on the Department rather than the assessee. For the corpus deposit, he faulted the AO for not conducting inquiries to "prove it in his favor". For the sale receipt, he concluded the addition was unjust "merely" due to lack of third-party response. This mindset is contrary to Section 68 jurisprudence. The initial and primary burden lies on the assessee to offer a credible explanation for a credit, after which the AO may rebut it. If the assessee fails, the AO is not required to ferret out evidence to contradict an unsubstantiated claim. The CIT(A's expectations set a higher bar for the Department than for the taxpayer, which is not what the law prescribes. The Calcutta High Court in CIT v. Kamdhenu Vyapar Co. Ltd. (263 ITR 692) explicitly noted that until the assessee proves the basic three elements (identity, capacity, genuineness), the onus does not shift, and the AO is not obliged to accept the explanation in fact, the AO has the power to insist on more evidence or draw adverse inference if the assessee's evidence is incomplete. CIT(A's approach turns this on its head, as he essentially required the AO to find evidence of non-genuineness while the assessee's own proof was scanty. This 23

legal error is a strong ground for appeal, as ITAT can be invited to apply the correct burden of proof and thereby find the additions justified due to the assessee's failure to dispel the suspicious circumstances. Acceptance of Self-Serving Evidence: CIT(A liberally accepted the assessee's documents at face value one sample agreement for corpus, and the sale ledger+agreement for the 11.25L without appreciating that such evidence was entirely under the assessee's control and uncorroborated by any independent source. The Supreme Court in Durga Prasad More famously held that tax authorities are not bound to accept self-serving documents which are potentially arranged, and should examine the surrounding circumstances. Likewise, in Sumati Dayal, the SC disregarded formal evidences of horse race winnings in favor of circumstantial inference of income from undisclosed sources. In the present case, CIT(A failed to apply the test of surrounding circumstances and human probabilities: It is inherently unusual for a developer to hold ₹2.87 Cr of buyers' money for years without any demand from those buyers or any interest paid. Ordinary buyers would insist on either possession, refund or at least interest for such a long delay. The fact that this did not happen (as per records up to the appeal) makes the scenario suspect a point the AO implicitly recognized, but CIT(A ignored. It is also unusual for a genuine flat purchaser to ignore all communications again pointing to either a dubious transaction or a sold entry. CIT(A should have been more probing here instead of simply concluding "if declared as income, no addition". The very declaration of it as income was in question (was it truly declared? was it truly income from a sale?). By not delving into these questions, CIT(A's factual finding is incomplete and thus open to challenge. Ignoring "source of source" where relevant: Section 68, as clarified by courts, allows (in appropriate cases) the investigation of the source of the credited sum beyond the first layer. For the ₹2.87 Cr, even if one assumes the immediate source was "flat buyers", the real concern is who provided those funds to the so-called buyers? It could be the assessee's own unaccounted cash circulated through friendly individuals posing as flat purchasers. The assessee did not provide any KYC or financial capacity of those buyers. If, hypothetically, many of them were people of little means or related parties, that would be telling. The CIT(A's approach foreclosed this line of inquiry, which is prejudicial to Revenue's interests. The Supreme Court in PCIT v. NRA Iron & Steel (supra) upheld an addition where share subscribers, despite being taxpaying companies on record, were found lacking creditworthiness and their funds' origin unexplainable reinforcing that the AO is entitled to look behind the names. Similarly, here the mere naming of "various purchasers" is not sufficient what if those names were fronts? The AO wasn't given the chance to question them. Revenue's appeal will argue that CIT(A's decision, by not addressing this aspect, was legally infirm. Procedural Irregularity (Enhancement vs. Deletion): A technical, but important, point: CIT(A's action of introducing a new addition of deemed interest while deleting the principal could be seen as an enhancement of income without due process. The AO had not added any interest in the assessment order. By directing a 10% interest income addition, CIT(A in effect enhanced the assessment on a new issue (interest on corpus), which requires prior notice to the assessee under section 251(2). There is no indication such notice was given. While this aspect itself is between CIT(A) and assessee, it 24

underscores that CIT(A's remedy was legally unsound. From Revenue's perspective, this convoluted outcome (deleting one addition but adding another not originally contemplated) may not stand if challenged by the assessee. It would be far cleaner and legally robust to uphold the original principal addition itself. In appeal, we can submit that CIT(A's order, if left unchallenged, might not achieve finality anyway the assessee could object to the interest addition on procedural or substantive grounds (e.g.. arguing interest should only be taxed in the year of society handover or such). Therefore, it is in Revenue's interest to seek restoration of the original addition, which was straightforward and in line with law, rather than the CIT(A's novel and potentially vulnerable approach. 4. Deemed Interest vs. Section 68 Addition - Revenue's Stand A key part of our appeal will address CIT(A)'s proposal that taxing a deemed 10% interest on the corpus fund is an adequate resolution, making the principal addition unnecessary. We contend that this view is fallacious and undermines the purpose of Section 68: a. Different Purpose: Section 68 targets unexplained credits (capital sums) in the books, treating them as income when unexplained. Taxing interest on those sums addresses a completely different aspect the income generated (or saved) by use of those funds. These two are not substitutes; in fact, they can coexist. If an assessee introduced unaccounted ₹1 crore as a bogus loan and earned interest on it, both the 1 crore (unexplained credit) and the interest (income from that credit) are theoretically taxable, under different provisions (the principal under Sec 68, the interest under normal provisions). CIT(A's approach of choosing interest in lieu of principal effectively lets the principal escape taxation, which is contrary to the scheme of the Act. Notably, unexplained credits like those under Sec 68 are taxed at a special flat surcharge (per Sec 115BBE, post-2016 amendment) without any deduction a sign of legislative intent to deter and heavily tax such undisclosed monies. By contrast, taxing only an imputed interest (which would fall under "Income from Other Sources or "Business Income") allows normal rates and perhaps even set-offs. This disparity clearly shows that deemed interest cannot recompense the revenue loss from ignoring the unexplained credit itself. b. Precedential Support: No authoritative court decision suggests that if an assessee fails to explain a credit, taxing some notional interest benefit is a proper alternative to taxing the credit. CIT(A likely took this approach from certain ITAT rulings that in different contexts (like completed housing projects eligible for 80-IB deductions) held corpus fund is not taxable but interest can be (or vice versa). However, those are not binding precedents, and in fact there is contrary authority as discussed. The ITAT Mumbai in the Bhoomi Realtors case (2019) ultimately taxed the interest because that was the issue before it (the principal was not under dispute in that year or was capital in nature). But importantly, it did not say that interest in lieu of principal is the remedy where principal is unexplained. It taxed interest in addition to whatever treatment of principal (which in that case was eventually handed to society). In our case, the principal is still lying with the assessee unaccounted for. The proper course is to tax the principal (now) under Sec 68, and when the assessee actually transfers it to the society (if it ever does), that outflow can be dealt with in that future year as per law. CIT(A's direction results in an awkward situation: the AO is to "allow the addition of ₹2.87 Cr" (meaning delete it) and instead assess interest of ₹28.8L but CIT(A also says 25

that interest is "not year specific", leaving ambiguity whether only one year's interest to be taxed in AY 2016-17 or cumulative interest up to handover. This lack of clarity could lead to further disputes. It is far simpler and legally sound to treat the entire 2.87 Cr as income in AY 2016-17 (since the credit arose in that year) -which was the AO's action rather than spread notional interest over indeterminate years. The latter introduces complexities (e.g., if project completed in 2022, would interest for 6 years be taxed in one year or each year separately? CIT(A did not specify, potentially overstepping his jurisdiction of one AY). e. Potential for Abuse: If CIT(A's view were accepted, it would set a dangerous precedent. Any taxpayer could introduce large unaccounted sums, label them "deposit for XYZ to be refunded/handed over later," keep them on the balance sheet, and hope to only be taxed on some notional interest (and even that, only If the AO detects the issue). This would render Section 68 toothless in many scenarios. The law intends that unexplained monies themselves are brought to tax to prevent money laundering or temporary parking of untaxed income. Taxing interest is a much smaller deterrent- essentially akin to a minor charge for using black money until it is laundered out. Such an outcome should be resisted in the interest of upholding the integrity of tax administration. The Revenue will argue that Section 68 addition and interest addition serve different objectives and the former cannot be waived in favor of the latter when conditions for invoking Section 68 are met. In summary, deemed interest is not substitute for Section 68; it is, at best, an additional safeguard to tax any interim income from the funds. The primary violation introduction of unverified funds is only addressed by taxing the funds themselves. Our appeal will urge the ITAT to reinstate the ₹2.87 Cr addition in full, and if it deems fit, also direct that any actual interest earned (if evidence shows the assessee did earn interest, e.g. in bank) be taxed. But the absence of interest income declared cannot shield the principal from tax. Judicial Precedents Supporting Revenue's Case To bolster the above arguments, we will cite binding precedents and favorable rulings, such as: Supreme Court - CIT v. P. Mohankala (2007, 291 ITR 278): Held that when the explanation offered by the assessee about the nature and source of credits is not found satisfactory by the AO, those credits can be treated as income, and the assessee's mere denial of wrongdoing cannot prevent the addition. In that case, large foreign remittances claimed as gifts were taxed under Sec 68 as the creditworthiness and circumstances were suspect. The ratio confirms that the AO has discretion to treat a credit as unexplained if not convincingly explained, even if some paperwork is in order, and courts should not interfere if the decision is based on appreciation of facts. Supreme Court PCIT NRA Iron & Steel Pvt. Ltd. (2019, 412 ITR 161): Reiterated that the assessee must establish the identity. genuineness, and creditworthiness of creditors (in that case, shareholders who paid share premium). Merely providing PANs, bank entries, etc., may not suffice if there are indicators of accommodation entries; the AO is not bound to accept the assessee's explanation if surrounding facts make it dubious. This directly supports Revenue's stance on both the corpus deposit (creditworthiness of alleged "flat buyers" not proven at all) and the sale receipt (genuineness in doubt). The 26

SC overturned a High Court lenient view and upheld the addition, underscoring that courts should not substitute their own conjectures if the AO's conclusion of lack of genuineness is reasonable relevant to counter CIT(A)'s more assessee-friendly conjectures. Supreme Court Sumati Dayal v. CIT (1995, 214 ITR 801): Emphasized the doctrine of human probabilities and that apparent transactions must be scrutinized for their reality. We will use this to argue that CIT(A failed to consider the probabilities (e.g., genuine buyers' likely behavior) and instead believed the "apparent". Applying Sumati Dayal, the probable reality is that the ₹2.87 Cr could well be the assessee's own funds (given no buyer agitation or interest) and the 11.25L could be an arranged entry thus justifying the AO's conclusions. Supreme Court CIT v. Durga Prasad More (1971, 82 ITR 540): Often quoted for the principle that tax authorities can go behind the form of evidence to uncover the true nature of a transaction, and are not required to accept documents at face value if there is reason to suspect they are a sham or have been contrived. We will invoke this to support the AO's treatment of the so-called corpus liabilities and sale receipt as the assessee's own income, regardless of documentation. High Court - Shankar Industries v. CIT (Calcutta HC, 1978, 114 ITR 689): Held that mere furnishing of particulars like file numbers of creditors is not sufficient; the assessee must prove the credits are genuine, and if the AO finds the evidence lacking, an addition is justified. This case involved loans, but the principle extends to any credit. It was also held that the burden of proof lies on the assessee under Section 68 and remains there until adequately discharged. This directly rebuts CIT(A)'s approach on burden. The Calcutta HC in CIT 1. Precision Finance Pvt. Ltd. (1994, 208 ITR 465) similarly stated that Identity of creditors, their creditworthiness, and genuineness of transactions are fundamental, and if any of these is not satisfied, the credit shall be deemed unexplained. Our case suffers on all three fronts for the corpus credits (identity not fully given, creditworthiness unknown, genuineness unverified). High Court CIT v. Devine Leasing & Finance Ltd. (Del HC 2008, 299 ITR 268) and CIT v. Lovely Exports (P) Ltd. (SC 2008, 216 CTR 195): These are often quoted by assessees to say if identity of investors is provided then Section 68 addition cannot be made (as in share capital cases). However, the Supreme Court in NRA Iron & Steel clarified that those judgments do not absolve the assessee from proving genuineness or creditworthiness. We will be ready to counter any reliance on Lovely Exports by pointing out that here the identities of many contributors are not conclusively established (most were not even named to AO/CIT(A)) and genuineness is in doubt. So the ratio of those cases (which anyway are on share capital with ROC details etc.) doesn't directly apply. Our case aligns more with NRA Iron & Steel where even though identities were there, the transactions were held ingenuine. In sum, the weight of legal authority favors the Revenue when an assessee has undisclosed, unverified credits. The CIT(A's order, by deviating from these principles, gives us strong grounds to appeal and expect a favorable outcome.”

26. Based on aforesaid submissions, it was the prayer of revenue that the addition of Rs.2,87,75,495/- u/s 69 on account of unexplained corpus funds and security deposit should be sustained in full in place of the directions of Ld. CIT(A) to make the addition of 10% on account of interest.

separate issue and cannot, in the absence of supporting material, be determined by applying a notional rate of 10%.

32. We, therefore, consider it appropriate to restore this issue to the file of the Assessing Officer for fresh examination. The assessee shall be afforded adequate opportunity to furnish the relevant purchaser-wise documentary evidence and explain the nature and source of the aforesaid receipts. The Assessing Officer shall thereafter adjudicate the issue afresh in accordance with law, after considering the material furnished by the assessee and without being influenced by the observations contained herein. Ground No. 5 & 6 of the assessee and ground no 1 to 4 & 7 of the revenues appeal, therefore are allowed for statistical purposes.

Order pronounced in the open court on 23-09-2026.

Sd/- Sd/- (ARUN KHODPIA) (NARENDER KUMAR CHOUDHRY) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated : 23-09-2026. Ankit K., Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. Guard File 5. CIT

BY ORDER,

(Dy./Asstt. Registrar) ITAT, Mumbai